Navigating Insurance for Properties Without Code Compliance in New Zealand

Understanding Code Compliance Certificates in New Zealand

A Code Compliance Certificate (CCC) is an official document issued by your local council confirming that building work complies with the building consent and the New Zealand Building Code. It represents the final step in the building consent process and serves as verification that the completed work meets all necessary building standards.

Properties built in the 1990s and early 2000s, particularly those with monolithic cladding systems like the property in our case study (built in 1996/1997), often face compliance issues due to significant changes in building regulations following the leaky homes crisis. When building requirements change after construction has commenced or been completed, properties can be left in a state of limbo regarding their compliance status.

Why Properties Might Lack Code Compliance

There are several reasons why a property might not have obtained a Code Compliance Certificate:

• Building work was completed but the final inspection was never conducted
• Building regulations changed during or after construction
• Issues identified during final inspection were never addressed
• Original building consent has lapsed
• Non-consented work was completed on the property

In the case study scenario, the property was built in 1996/1997 with monolithic cladding that was compliant at the time of construction. However, before the final inspection occurred, building standards changed significantly following widespread issues with weathertightness in properties using this cladding system. By the time compliance was followed up, the cladding no longer met the updated requirements of the Building Act.

Insurance Challenges for Properties Without Code Compliance

Obtaining insurance for a property without a Code Compliance Certificate presents unique challenges but isn’t impossible. Insurance providers in New Zealand will generally consider these properties, but with important caveats that potential buyers must understand.

Can You Insure a Property Without Code Compliance?

Yes, insurance is available for properties without code compliance certificates in New Zealand. However, the policies typically contain specific exclusions and limitations that directly relate to the non-compliant aspects of the property.

Based on our analysis of policy wordings, insurers typically exclude:

• Costs associated with bringing the building up to code following a loss event
• Damage resulting from non-compliant building elements
• Repairs that would trigger compliance requirements with current building standards
• Costs incurred in complying with enforcement or remedial orders

One of the most significant limitations relates to what insurers call “compliance costs” – the additional expenses required to bring a repaired or rebuilt property up to current building code standards following an insured event. While standard policies typically cover these costs for compliant properties, they are often specifically excluded for properties without code compliance.

The Monolithic Cladding Complication

Properties with monolithic cladding systems, like the one in our case study, face additional scrutiny from insurers. These cladding systems have been associated with weathertightness issues, often referred to as “leaky building syndrome” in New Zealand.

Policy wordings frequently contain specific exclusions related to:

• Weatherproofing failure
• Moisture penetration
• Water damage related to cladding defects
• Any damage resulting from the failure of cladding to meet its intended purpose

According to our policy wording database, many insurance policies explicitly exclude “the failure of any building or structure to comply with or perform to the requirements of any building code or to meet the level of performance, quality, fitness or durability of its intended purpose in relation to leaks, water penetration, weatherproofing, moisture or any effective water exit.”

Pre-Purchase Considerations for Non-Compliant Properties

If you’re considering purchasing a property without a code compliance certificate, particularly one with monolithic cladding, take these essential steps before proceeding:

1. Comprehensive Building Inspection

Invest in a thorough building inspection by a qualified professional with experience in identifying issues related to non-compliant properties. For properties with monolithic cladding, consider specialists who can identify potential weathertightness issues using moisture meters and thermal imaging.

The inspection report should clearly identify:

• The specific non-compliant elements
• Potential risks associated with these elements
• Estimated costs to remedy compliance issues
• Any signs of existing damage or deterioration

2. Insurance Pre-approval

Before finalizing your purchase, approach multiple insurance providers for quotes. Be completely transparent about the property’s compliance status and specific features like monolithic cladding.

Request written confirmation of:

• Insurance availability and premium costs
• Specific policy exclusions related to non-compliance
• Coverage limitations for the property’s specific non-compliant aspects
• Any conditions that would need to be met to maintain coverage

This step is crucial as it helps you understand exactly what would and wouldn’t be covered in the event of a claim.

3. Legal and Financial Advice

Consult with a property lawyer familiar with non-compliant properties to understand potential legal implications. Similarly, discuss financing options with your mortgage broker or bank, as lenders may have reservations about financing properties without code compliance.

4. Council Records Research

Request a Land Information Memorandum (LIM) report and all available council records related to the property. This will help identify the specific compliance issues and any notations on the council files that might affect future sale or renovation potential.

Policy Limitations and Exclusions to Be Aware Of

Based on our comprehensive analysis of insurance policy wordings, here are the most common limitations and exclusions that apply to properties without code compliance:

Claims-Related Compliance Costs

Standard policies typically include coverage for necessary costs incurred in complying with regulations when repairing or replacing damaged property. However, policies for non-compliant properties often exclude:

• Costs for work already ordered by authorities before the loss event
• Expenses related to bringing undamaged portions of the property up to code
• Compliance costs associated with pre-existing non-compliant features

One policy wording specifically states: “Necessary and reasonable costs incurred in complying with regulations in order to repair or replace loss to the damaged, lost or destroyed part of insured property, except costs incurred for work that you have already been ordered to carry out.”

Construction and Renovation Limitations

Many policies contain exclusions related to properties under construction or renovation, which may impact your ability to remedy non-compliant aspects of the property under your insurance coverage:

• Exclusions for property “during installation, construction or erection”
• Limitations on coverage during testing and commissioning after construction
• Specific requirements for notification of renovations or material changes

Pre-Existing Defects

Insurance policies universally exclude coverage for pre-existing defects, which often directly relates to non-compliant building elements:

• Gradual deterioration resulting from non-compliant construction
• Inherent defects in design or materials
• Failure of weatherproofing or moisture barriers

Risk Mitigation Strategies for Owners of Non-Compliant Properties

If you already own or decide to purchase a property without code compliance, consider these strategies to mitigate risks and protect your investment:

1. Retroactive Compliance Where Possible

Investigate the possibility of obtaining a Certificate of Acceptance (COA) from your local council for work that was completed without a CCC. While this doesn’t replace a proper CCC, it acknowledges that the council has inspected the work and found it to be compliant to the extent that can be determined.

2. Remedial Work Prioritisation

Address the most critical compliance issues first, particularly those related to safety and weathertightness. Consult with a building professional to develop a prioritised plan for remedial work. Keep detailed records of all improvements made to the property.

3. Enhanced Maintenance Programme

Implement a comprehensive maintenance schedule with particular attention to known problem areas. For properties with monolithic cladding, this should include:

• Regular inspections of all seals, joints and flashings
• Prompt repairs of any cracks or damage to the cladding system
• Maintenance of adequate ground clearance from cladding
• Ensuring proper ventilation to reduce moisture buildup

4. Specialist Insurance Brokers

Work with insurance brokers who specialise in non-standard properties. These professionals often have access to niche insurance providers and can negotiate better terms based on their understanding of the specific risks.

Negotiating the Purchase of a Non-Compliant Property

If you’re considering purchasing a property without code compliance, like Graham’s father in our case study who is looking at a property heading to auction, use these strategies during the negotiation process:

Price Considerations

The lack of a CCC and issues like monolithic cladding should significantly impact the property’s value. Consider:

• The cost of potential remedial work to achieve compliance
• Higher insurance premiums over the life of ownership
• Potential limitations on future saleability
• Costs of enhanced maintenance requirements

Use these factors as negotiation points to achieve a price that reflects the true cost of ownership, including risk factors.

Conditional Offers

If possible, make your purchase offer conditional on:

• Satisfactory building inspection results
• Obtaining acceptable insurance coverage
• Legal review of compliance documentation
• Council records search results

For auction properties, like in the case study, ensure all due diligence is completed before auction day, as purchases at auction are typically unconditional.

Legal Implications and Disclosure Requirements

Understanding your legal obligations regarding non-compliant properties is essential for both buyers and owners.

Disclosure to Insurers

The Insurance Law Reform Act and Fair Insurance Code require full disclosure of material information when applying for insurance. Non-compliance issues, including the lack of a CCC and the presence of monolithic cladding, are considered material facts that must be disclosed.

Failure to disclose these issues may result in:

• Policy avoidance if the non-disclosure is deemed material
• Claim denials even for unrelated damage
• Proportional claim reductions based on premium adjustments

Disclosure When Selling

If you later sell a property without code compliance, you have legal obligations under the Real Estate Agents Act and Consumer Guarantees Act to disclose known defects and compliance issues. Failure to do so could result in legal action from buyers who discover these issues after purchase.

Case Study: Insurance Options for a 1990s Home with Monolithic Cladding

Returning to our specific case of Graham’s father looking to purchase a property built in 1996/1997 with monolithic cladding and no code compliance certificate, here’s a practical approach to securing insurance:

Immediate Pre-Auction Steps

With the auction scheduled for Thursday, Graham’s father should immediately:

1. Contact multiple insurance brokers specialising in non-standard properties
2. Provide full details of the property, including its age, cladding type, and compliance status
3. Request written quotes and detailed coverage summaries
4. Ask specifically about exclusions related to the monolithic cladding and compliance issues

Understanding Policy Limitations

Based on our policy wording research, Graham’s father should expect policies to exclude:

• Costs related to rectifying existing non-compliance issues
• Damage resulting from weathertightness failures of the monolithic cladding
• Additional costs to bring the property up to current building code standards after a claim

Insurance will likely be available but may come with higher premiums and significant exclusions specific to the property’s non-compliant aspects.

Price Adjustment Considerations

When bidding at auction, Graham’s father should factor in:

• The potential cost of remediating the monolithic cladding (potentially $50,000-$150,000+ depending on the property size and condition)
• Increased insurance premiums over the ownership period
• A discount that reflects the reduced marketability of a non-compliant property

Conclusion: Making an Informed Decision

Purchasing a property without code compliance, especially one with monolithic cladding, involves accepting certain risks. However, with proper due diligence, risk assessment, and appropriate insurance coverage, these properties can still represent viable investment opportunities.

The key is to enter into such a purchase with complete awareness of:

• Insurance limitations and exclusions
• Potential remediation costs
• Ongoing maintenance requirements
• Impact on future saleability

By understanding these factors and obtaining appropriate professional advice, buyers can make informed decisions about whether a non-compliant property represents acceptable risk at the right price.